For years, we’ve all complained about the distaste for budgets. No one likes to budget either. It somehow feels more like a chore than the secret weapon to achieve our dreams and goals.
After working as a Certified Financial Planner for over 12 years, I can tell you first hand that it’s OK to throw out your budget. Instead, the magic lies in creating a spending plan that helps you supercharge your goals.
Establish Money Goals
The problem with 99 percent of budgets is that they feel limiting and judgmental. Most budgets aren’t focused on you – dreams and goals that you want to achieve. A simple mind shift is to understand that money is just the tool to help you achieve those things in life that are important.
If you don’t have a list of goals, now is a great time to make one. It’s great to dream big, but also make sure you list out some goals that you can achieve easily, such as:
- Increase your retirement savings by 1 percent.
- Commit to saving $100 a month for a vacation this summer.
- Track your spending with a mobile app.
- Have that money talk with your significant other.
Once you have your goals listed out, you can begin to create your spending plan. Your spending plan will give your money direction as to how you will achieve your goals. For instance, if you have $500 extra each month, you might divide that up between your goals, or send that extra amount towards one big goal that you’re aiming for.
Focus on the Numbers
The numbers are where the magic lives. Too many budgets fail because they don’t have a realistic view of what’s actually happening with your spending. Instead, a spending plan should focus on:
- How much money you make each month
- How much money you’re spending in each category (and setting goals around your category spending)
The income category on your spending plan is simple. It’s just a reflection of how much money in total you’ll make this month, including any side-hustle money.
Too many budgets fail because they don’t have a realistic view of what’s actually happening with your spending.
The spending category is trickier. There are two different types of expenses: fixed and variable. Fixed expenses are simply those expenses that you must pay each month. Things like rent, mortgage, car payment, minimum payment on your student loans and credit cards, car insurance, etc.
Variable expenses are where most budgets, or spending plans, fall apart. What’s most important is that you create a category for each expense. For example, eating out, entertainment, subscription fees, ATM fees, shopping, extra debt payments, beauty and self-care, etc. Every dollar you spend needs to go into a category.
Put It All Together
The best way to put your spending plan together is to look at last month’s bank statement. This will give you a good feel for all your expenses during a month. You can also use a mobile app to help you analyze your spending. Some favorites include:
Once you have your expenses, both fixed and variable listed out, you can construct your spending plan. From here, you can send extra money you have each month towards your goals.
Incorporate your goals into your spending plan and give each goal a dollar amount. You can list your goals in terms of priority, or list one goal a month until you reach that goal.
The simplicity of your spending plan is that it gives your goals direction. You can visualize how you will achieve your goals, and you can make auto-corrections with any overspending from month to month.